Groupon, which is downsizing its operations in China, made some huge mistakes in trying to expand there. Here’s what we can learn from the deal giant’s giant fumble.

When I saw a poster for Groupon in a Shanghai subway this summer, my first reaction was, “What a perfect match!” I love buying Groupons on my iPhone and I thought that the cost-conscious, cellphone-toting Chinese public would too.

And they do. But Groupon has proven that it’s not ready for them.

The company recently announced that it will be “fine tuning” its strategy in China. By that, they mean shuttering many of their 80 Chinese offices, slashing 400 jobs, and dealing with a pending lawsuit from former employees. They may be tuning, but it isn’t fine.

Groupon made a number of blunders in China. Here are three things they will need to do differently to have a shot at success in the future.

1. Have a real strategy

According to a Groupon spokesman, “Groupon’s approach to international expansion is to aggressively create a large presence upfront and refine our strategy as we gain deeper insight into the market.” While I generally applaud smart, bold moves into new markets, this isn’t one of them.

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Groupon is spending millions of dollars and putting its reputation on the line on the back of a sloppy strategy. For a company that spent $1.60 for every dollar it made in revenue in 2010 and whose aspirations to go public have placed it under a microscope, a throw-everything-at-the-wall-to-see-what-sticks strategy is unaffordable and potentially disastrous.

Working to understand the market you’re entering and developing the cultural agility of your organization may not be as sexy as making a big splash up front. But if you want to expand internationally with any kind of sustainability, they’re as necessary as learning how to swim before jumping into the middle of a lake.

2. Treat people like they’re smart (because they are)

While Groupon was pouring money into its China expansion, the company ran a Super Bowl ad in the U.S. that promoted a restaurant deal with the line “The people of Tibet are in trouble. Their very culture is in jeopardy.” Yes, Super Bowl ads need to be edgy to get noticed and Groupon’s ad received plenty of attention. But it must have come as quite a shock to their marketing department when the ad spread like wildfire through the Chinese blogosphere.

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Perhaps Groupon thought that Chinese consumers wouldn’t make the connection between the commercial and the company because Groupon operates in China under the name Gaopeng. But their potential customers did make the connection. Because they’re smart.

Being a successful international organization means being able to function in a borderless business environment where information flows in real time. The adage that all press is good press does not apply to a foreign entity attempting to enter a very competitive and crowded market.

Instead of deeply offending their customers, Groupon should have been more culturally agile by demonstrating a heartfelt respect for potential buyers and a genuine desire to understand them in order to add value–not just take their money.

3. Localize and listen

One of the few things that Groupon did right in China was to have local partners. The company purchased a 40% stake in a joint venture with the Chinese Internet giant Tencent Holdings and the private equity firm Yunfeng Capital.

The goal of a localized joint venture is to work with partners that already have a deep understanding of the target market and can add valuable input to help make the venture successful.

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Of course, this doesn’t work if you don’t actually listen to your partners. In a Wall Street Journal article, an unnamed manager at Gaopeng was quoted saying, “Groupon came into China and tried to expand too aggressively. That strategy just doesn’t work in China.” When managers are giving quotes like that to journalists, it’s because they haven’t been heard. Or heeded.

While I was in China, I interviewed the general manager of a large foreign retailer there. She told me that when the needs of her foreign employer and the demands of the Chinese market were at odds, the local demands always came first.

Groupon’s story is one of cultural failure. It isn’t that different from other companies that have attempted to jump the Great Wall only to fall flat on their faces. Best Buy, Barbie, and Marks & Spencer have all done the same, with Gap soon to join their ranks.

A culturally agile organization listens and responds to local market dynamics, customers, employees and partners. This is how companies like BMW, McDonalds, and IBM are doing so well in China.

Groupon may yet learn this lesson. They certainly won’t be successful until they do.

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Note: The ad at the top is for Groupon.cn which is not owned by Groupon. This issue is not the root of their problems, though.